As first reported by Reuters, UBS advisers servicing retirement
accounts moving forward can restructure the retirement portion of their business to be paid “based solely on the amount of assets and
not the volume of transactions or the products they recommend for retirement
accounts.” The initial reporting cited Tom Naratil, who helps run adviser operations
at UBS, and PLANADVISER has subsequently confirmed the broad strokes of UBS’
new approach.

Similar to the announcements made by some other
prominent national brokerages, UBS confirms it will cease offering to retirement clients a short list
of products that have compensation, liquidity and transparency characteristics
that do not mesh well with the purposes baked into the fiduciary rule reforms. The
firm points specifically to “exchange-traded notes” issues by UBS itself as an
example of a newly restricted product.

One interesting point in UBS’s announcement is that the wider
brokerage itself will not cease collecting retirement account commissions and therefore will likely
have to depend
on the best-interest contract exemption (BICE) to some degree. UBS says that client choice remains important and is the defining driver of its decisionmaking, and that individuals can still
opt for accounts that require them to pay commissions on each transaction,
rather than a flat fee based on assets.

In effect, UBS as an entity will still receive the
commissions from retirement accounts, thus altering the firm’s gross compensation
and potentially triggering a prohibited transaction under the fiduciary rule
expansion—thus requiring deployment of the BICE. However, the adviser would
still be able to service this relationships in a non-conflicted manner because
the commissions would no longer factor into setting their level of pay, and so
the adviser will not have an incentive to repeatedly trade in retirement
accounts for the sake of higher bonuses, even though UBS would theoretically make more money.

The firm acknowledges it is trying to take a non-disruptive
approach here, for both clients and advisers, given that the long-term future
of the new
conflict of interest standards are still uncertain. As many have argued during
the lengthy process it took to get the fiduciary rule in place, there are
clients who would surely pay less (potentially a lot less) under the old
commission-based models than they would under a new asset-based fee. Simple logic
confirms clients who do not frequently trade their holdings are served better
by paying up-front commissions rather than by being required to repeatedly pay the
adviser/broker an asset-based fee for advisory services they do not really
want/need.